Variable Costing & Segment Reporting-Seatwork January 31, 2019

Name___________________________________

PROBLEM SOLVING. Write your answer in the space provided or at the back of this paper.

1) Redstone Corporation produces a single product and has the following cost structure:

Number of units produced each year 4,000

Variable costs per unit:
Direct materials $80
Direct labor $82
Variable manufacturing overhead $2
Variable selling and administrative expenses $3
Fixed costs per year:
Fixed manufacturing overhead $176,000
Fixed selling and administrative expenses $316,000

Required:

a. Compute the unit product cost under absorption costing. Show your work!
b. Compute the unit product cost under variable costing. Show your work!

2) Nelson Corporation, which has only one product, has provided the following data concerning its
most recent month of operations:

1
Selling price $84

Units in beginning inventory 500

Units produced 1,900
Units sold 2,100
Units in ending inventory 300

Variable costs per unit:

Direct materials $25
Direct labor $10
Variable manufacturing overhead $7
Variable selling and administrative $10

Fixed costs:
Fixed manufacturing overhead $38,000
Fixed selling and administrative $21,000

The company produces the same number of units every month, although the sales in units vary
from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.

Required:

a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.

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Answer Key
Testname: VARIABLE COSTING SEATWORK

1) a. Absorption costing:

Direct materials $80

Direct labor 82
Variable manufacturing overhead 2
Fixed manufacturing overhead ($176,000 ÷ 4,000 units) 44
Unit product cost $208

b. Variable costing:

Direct materials $80

Direct labor 82
Variable manufacturing overhead 2
Unit product cost $164

2) a. Unit product cost under variable costing:

Direct materials $25

Direct labor 10
Variable manufacturing overhead 7
Variable costing unit product cost $42

Variable costing income statement

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Answer Key
Testname: VARIABLE COSTING SEATWORK

Sales ($84 per unit × 2,100 units) $176,400

Variable expenses:
Variable cost of goods sold
($42 per unit × 2,100 units) $88,200
Variable selling and administrative
($10 per unit × 2,100 units) 21,000 109,200
Contribution margin 67,200
Fixed expenses:
Fixed manufacturing overhead 38,000
Fixed selling and administrative 21,000 59,000
Net operating income $8,200

b. Unit product cost under absorption costing:

Direct materials $25

Direct labor 10
Variable manufacturing overhead 7
Fixed manufacturing overhead cost ($38,000 ÷ 1,900 units) 20
Absorption costing unit product cost $62

Absorption costing income statement

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Answer Key
Testname: VARIABLE COSTING SEATWORK

Sales ($84 per unit × 2,100 units) $176,400

Cost of goods sold
($62 per unit × 2,100 units) 130,200
Gross margin 46,200
Selling and administrative expenses
[($10 per unit × 2,100 units) + $21,000] 42,000
Net operating income $4,200